Malaysia told to end protection for Proton

Malaysia told to end protection for Proton

Associated Press, Kuala Lumpur, Malaysia

Malaysia must abandon its nationalistic pride and drop protections for national carmaker Proton if it wants to build a successful auto industry, a senior official said in remarks published on Friday.

Deputy Trade Minister Husni Hanadzlah was quoted by the New Straits Times as saying that Malaysia should emulate South Korea, which set up its car industry in 1975 and later lifted government protection to allow open competition.

"Today their (South Korean) cars are ranked 10th in the world. The Malaysian car industry is still struggling to stand on its own after almost 20 years," he said during a parliament sitting. "We have to put our sentiments aside and open the industry sooner or later."

Members of parliament have complained that Proton cars were problematic and not competitive. They have urged Proton to improve its car quality and designs before trying to penetrate the international market.

Proton was set up as a symbol of Malaysian self-reliance in heavy industry but after 22 years, quality remains its biggest shortcoming - something that was exposed as tariffs on foreign cars are whittled down under a regional free trade pact.

Its market share has dwindled from 57 percent in 1993 to around 30 percent in June.

Husni said the government currently only allowed the import of higher horsepower cars to reduce direction competition with Proton. Even then, import tariffs on these cars are still high between 150 and 210 percent, he said.

He urged the carmaker to buck up and accelerate plans to boost its competitiveness ahead of the country's auto liberalization in three years.

Proton, which sank into the red in the quarter ending June, is currently in talks with German auto giant Volkswagen AG for a proposed alliance that could bolster its fortunes and ensure its long-term survivability as foreign competition heats up.

But some auto analysts warned Volkswagen may abort the alliance if it can't obtain a majority stake and management control.

Proton, controlled by the government's investment arm Khazanah Nasional Berhad, has said it is open to selling an equity stake to Volkswagen but will not cede control to Europe's largest carmaker.